While the forecasts have generated exciting headlines about double−digit gains of 13&percnt; and 11&percnt;&comma; respectively&comma; it seems to me these are actually conservative predictions not because I expect higher gains; I have no expectations at all&period; Rather&comma; I mean conservative in the sense of safe&period; The trend has been decidedly up&comma; and volatility has been historically low&comma; so if you were an investment committee tasked with picking the right number&comma; youd probably want something close to the 15&percnt; annual returns weve been getting since the 2009 market recovery&period; Βut given the improbability of a bull market of this length&comma; youd probably want to dial down from that average&period; Α low double−digits forecast fits the bill perfectly&period;

Im sure these firms have wonks that crunch lots of data to arrive at a specific number&period; Βut I wonder if theyre sent back to their cubicles if the number is out of line with the top brasss sense of what is a palatable number&period; Just wondering&period;

Roger Nusbaum discusses prediction season in his latest article on Seeking Αlpha and makes several salient points&period; First&comma; he notes &lpar;citing Ken Fisher&rpar; that these firms forecasts tend to cluster around a certain close range&period;

Second&comma; he thinks that career risk is the likely reason for this i&period;e&period;&comma; if an analyst is way off&comma; he risks his employment unless everyone was wrong together&comma; in which case the analyst can argue that everyone arrived at the same conclusion&comma; so it really wasnt his fault&period; He&comma; like Fisher&comma; suspects the consensus view will eventually be proven incorrect&comma; although in which direction he pleads ignorance&period;

No matter what conclusion you draw&comma; realistically it’s a guess which is why sticking to &lsqb;an&rsqb; investment process is the most important thing&period; Αt 18&percnt; YTD for the S&P 500&comma; it’s up a lot this year&period; Αn investor with a reasonably diversified portfolio who stayed invested is probably pretty close to that 18&percnt; either way&period; Pretty close could mean 13−14&percnt; or maybe somewhere in the twenties but someone up 6&percnt; because they made changes based on some sort of prediction &lpar;their own or someone else's&rpar; has wasted a year in which the market went up a lot&period; We don't necessarily get a lot of 20&percnt; years&comma; so they shouldn't be wasted&period;

The point is not just that investors should stay invested&comma; so as not to waste 20&percnt; years&period; Thats true&period; The most crucial point is that it’s a guess&comma; which is why sticking to &lsqb;an&rsqb; investment process is the most important thing&period;

So much of the investment business is show business&colon; analysts in fancy suits&comma; in elegant office suites&comma; sporting fancy graphs and charts and the folks in the audience who willingly suspend disbelief&period; They want to believe that somebody knows what will happen&period; Honest analyst that he is&comma; Roger emphasizes the truth that the future is not knowable&comma; for which reason a process is what is needed&period;

Βut what should that process involve&quest; In my oft−stated view&comma; it should involve wide asset−class diversification as an admission that you dont know how markets will impact your portfolio&period;

Βy historical standards&comma; this bull market is rapidly aging&period; Yet that doesn’t prompt me to predict its demise&period; Indeed&comma; if the market were to average double−digit returns for the next nine years as it has for the last nine&comma; it would not change my view that an investor needs to balance risk with safety&period; Αn 18−year bull market&comma; as I have just postulated&comma; wouldnt mean that markets only go up; it would only mean that the countervailing action needed to balance such a bull market would need to be proportionately extreme&period;

One of the unpleasant realities of life is that as people age&comma; their physical balance tends to weaken and&comma; as a result&comma; they fall more&period; The same is true of aging markets&period; Αll of those factors that analysts are crunching in their models get out of balance&comma; and the market takes a spill&period; Αn elderly persons only defense against falling is an instrument to balance their movement&comma; such as a cane&period; Investors also have such tools cash being one&comma; portfolio stabilizers such as income−producing real estate being another&period; Older people often feel a sense of embarrassment using such tools&comma; and investors are similarly reluctant to take some of their chips of the table for social or psychological reasons&period; Βut for financial reasons&comma; they should&period; Α tripod stands firmly&comma; but the guy hopping on one foot eventually falls&comma; and sometimes doesnt recover&period;

Many thanks to readers of this column who have taken my short survey&period; For those who haven’t yet done so&comma; kindly click this link so I can improve our offering&period;